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Oil Rebound’s Dirty Little Secret Threatens U.S. Gas Bulls

  • Output from hottest U.S. shale play may blindside gas traders
  • Permian’s lower drilling cost driving a rig increase
Oil refinery in Bismarck, North Dakota.
Photographer: Andrew Burton/Getty Images
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One of the biggest threats to an extended rally in U.S. natural gas prices is lurking in the oil patch.

Gas production in most of the country has dropped amid cost-cutting. Not so in the Permian Basin, the nation’s biggest crude reservoir and one of the few places where drilling has remained profitable. Permian drillers led by Occidental Petroleum Corp. and Pioneer Natural Resources Co. are pumping more oil as prices rise, pushing natural gas extracted as a byproduct from the West Texas play to almost 7 billion cubic feet a day, Bloomberg Intelligence data show. That’s about 8 percent of U.S. supply.